Laurence Kaye on Digital Media Law

Overhaul of UK Consumer Protection Laws

Here's another example of how regulation of online business is getting tighter and tougher.

The UK has recently introduced laws which provide increased protection for consumers from 'unfair trading.' Viewed another way, these laws have increased the level of compliance which traders across the board must observe, whether their business is conducted or advertised online, door-to-door or on the high street.

Failure to comply with these regulations carries some really nasty consequences - fines and even imprisonment. So all online businesses need to take note and act accordingly.

In this post, I will look at why this legislation was introduced and how it operates. I will then focus specifically on how it may apply in an e-commerce environment in that it seeks to capture previously unregulated (at least, in this specific sense) online marketing techniques.   

Implementation of EU Directive

The Consumer Protection from Unfair Trading Regulations 2008 (the "Regulations") came into force last month (on 26 May). The Regulations implement in the UK the EU's Unfair Commercial Practices Directive. The aims of this Directive are:

• to strengthen consumer protection by introducing a general prohibition on traders against treating consumers unfairly; and
• to harmonise unfair trading laws protecting consumers in all EU member states.

The Regulations replace previous consumer protection legislation (which was a bit patchy and piecemeal), such as the majority of the Trade Descriptions Act 1968, closing loopholes in the process, and have been described as "the biggest change in advertising regulation in...40 years" (FT.com, 26 May 2008)

The Department for Business, Enterprise & Regulatory Reform has stated that the Regulations will "create a modern, simplified consumer protection framework" and "put in place a comprehensive framework for dealing with sharp practices and rogue traders who deliberately set out to exploit loopholes in existing regulation."

So there's the "why?"...here follows the "how?"...

What the Regulations Cover

The Regulations prohibit "unfair commercial practices." These are grouped into 3 categories:

1. Misleading actions
2. Misleading omissions
3. Aggressive practices

The Regulations also include a Schedule setting out a "blacklist" of 31 commercial practices which are considered unfair in all circumstances.

Misleading actions refer to, amongst other things, false information or deceptive presentation as to the nature, characteristics, price, sponsorship, or approval of the product, or the motives for the commercial practice. In addition, in order to constitute a misleading (and therefore unfair) commercial practice, it must cause or be likely to cause the average consumer to take a transactional decision he would not have taken otherwise.

Misleading omissions refer to the concealment or omission of material information (such information as the average consumer needs, according to the context, to take an informed transactional decision), or the provision of material information in a manner which is unclear, unintelligible, ambiguous or untimely. As above, such misleading omission is an unfair commercial practice if it causes or is likely to cause the average consumer to take a transactional decision he would not have taken otherwise.

Aggressive practices are where, in the factual context, taking account of all circumstances, the average consumer's freedom of choice or conduct in relation to the product concerned is significantly impaired (or likely to be significantly impaired) through the use of harassment, coercion or undue influence. As above, this constitutes an unfair commercial practice if it causes or is likely to cause the average consumer to take a transactional decision he would not have taken otherwise.

Schedule 1 covers such practices as "bait advertising" (where a trader advertises a product without fully believing that he can supply it in the quantities which can be reasonably expected to be demanded in light of the price, scale of advertising, etc), "bait and switch", perpetual "closing down sales", using editorial content in the media to advertise the product without identifying it as advertorial, false claims as to the healing properties of a product, describing a product as free if there are in fact hidden costs, and "spamming".

Application of Regulations to Online Marketing and Trading

So, what impact are these Regulations going to have in an online context? Of course, e-commerce businesses will need to be familiar with the general prohibitions in order to avoid the risk of fines of up to £5,000 and/or imprisonment for up to 2 years. Online traders are affected by the Regulations in the same way as traditional traders from door-to-door salesmen to the shop on the high street. They must be sure that their commercial practices do not constitute misleading actions, omissions, or aggressive or blacklisted activities. Here follow some examples:

The director of a company who anonymously posts flattering comments about his business on blogs, social forums, or wikis --> potentially guilty of misleading actions.

The pro-animal-testing company which conceals its identity as seller of a range of vegan products on a beauty website --> potentially guilty of misleading omissions.

The loan provider who emails respondents to a online questionnaire with emails and telephone calls with hard-sell tactics, playing on the respondent's vulnerability and lack of financial awareness --> potentially guilty of aggressive commercial practices.   

The sole trader who falsely holds himself out on his professional social networking profile as a signatory to a code of conduct --> potentially guilty of blacklisted activities.

The advertiser who initiates a viral email advert which creates the false impression that the recipient has/will/on doing a particular act will win a prize --> potentially guilty of blacklisted activities.

The e-tailer who falsely states that a product is only available for a very limited time, in order to elicit from consumers an immediate decision which is not based on informed choice --> potentially guilty of blacklisted activities.

Conclusion

As you can see, the effect of the Regulations will be far-reaching. All traders, whether operating in an online or offline context, need to be aware of the prohibitions in order to avoid being found guilty of unfair commercial practices.

It will remain to be seen to what extent the Regulations will change the online experience for consumers - could it be that they spell the end for spamming and the more irresponsible types of viral marketing? Will new advertising methods spring up as companies adapt to the new regulatory landscape? Will there be more corporate accountability for blog postings and wiki entries made by the company?

Only time will tell. Watch out for our future posts on this important subject.

Laurie Kaye/Yasmin Joomraty

Tips and Hints for Website Operators

Although the festive season seems a distant memory now to most of us, there are some retail website operators who are still feeling the effects of a Yuletide clampdown by the Office of Fair Trading ("OFT"). This got me thinking about how many website operators are not making the most of their websites and so I put together a few tips and hints on how to ensure your website complies with all relevant laws and maximises its potential. You can find these below. But first, a bit about how the OFT highlighted this issue:

OFT Survey

Over the busy Christmas shopping period, the OFT carred out a "web sweep" of UK retail websites to ensure their compliance with online shopping laws with the aim of identifying websites ""who need help bringing their practices up to scratch".

The OFT chose to take this action in response to the results of its survey of internet shopping, published in June, which found (amongst other things) that:

• 28% of online traders surveyed had limited awareness or were completely unaware of internet shoppping laws;
• 66% of online traders surveyed had never sought advice on internet shopping laws;
• 16% did not inform online shoppers of their legal right to cancel; and
• 59% imposed conditions which impeded online shoppers' right to cancel.

This cross-section suggests that there is an alarming amount of UK retail websites which do not comply with online shopping laws.

We must remember that it is not only retail websites who must comply with online legislation - there is a raft of online laws which apply to various websites, from the most basic, information-only sites to the more complicated forums allowing UGC upload. If the retail websites are not bothering to ensure compliance, it is likely that there are a large number of non-retail websites that are similarly gung-ho.

As there is a variety of legislation to cover websites, so there is a variety of potential penalties for the non-compliant. These could range from users suing a retail website for breach of consumer protection laws to third parties suing a website forum operator for defamation or copyright infringement.

Tips and Hints

With all of the above in mind, here are some tips and hints I have thought up. They are by no means comprehensive and as always, they do not constitute legal advice. In fact, the best tip of all - well we would say that! - is to seek specialist legal advice:   

1. Ensure compliance with relevant laws and reduce the risk of being penalised by ensuring you have a comprehensive set of terms and conditions and privacy policy which are tailored to your particular website. These will help to shield you from liability for such matters as copyright infringement, defamation, and data protection.
      
2. Protect your business assets and increase the value of your website, again by ensuring you have a comprehensive set of terms and conditions and privacy policy written in plain English. They'll vary from site to site, depending on whether you're selling goods or services or just providing information only. If you're hosting user generated content, you need to think about liability issues and how that UGC can be used and re-used by other users and possibly by you as well as the site operator.For example, if your website allows users to contribute and upload UGC, you need a licence from users to display their content. You can either create a bespoke licence or you can use the Creative Commons Licence. CC licences work well for non-commercial use but care needs to be taken if content may move from non-commercial to commercial re-use. So take advice first.
      
3. Once you have the terms and conditions, display a link to them on every relevant page of the website. In particular, refer users to the privacy policy on every page in which they are invited to submit personal information.
      
4. If you change the terms and conditions, email notification of such change to users where possible. Simply posting changes to the site may not be enough.
      
5. Ensure you have the right to use the relevant intellectual property from anybody who has worked for the website. Under English copyright law, the copyright owner is the person who created the work in question (unless an employee creates the work in the course of his employment, in which case the work is owned by the employer). Even where a person is commissioned to create a work, it will not be owned by the commissioner until a valid written agreement is in place. For example, if you engage a web developer to create a website, he will be the owner of all design and software he creates unless a valid written agreement transfers ownership to you. And if a third party registered your domain name, have this transferred as well.
      
6. Ensure any advertising on your website complies with all applicable legislation and the CAP Code (which is the industry code applicable to online advertising). For example, do not display a banner advertisement for an online poker company if access to your website is not restricted to over 18s. The position regarding services such as those provided by Google's Adsense is complicated as you do not have the same level of control. You may want to seek specialist legal advice.
      
7. If you send a newsletter to users, include an "unsubscribe" link in the email (or an alternative method of unsubscribing if by post) and always offer users ways in which they can amend any personal details you may hold.
      
8. If your website allows users to upload UGC, include a function whereby users can report offensive or objectionable content to you and act promptly to remove any such content. However, do not actively or regularly monitor your website for such content because by doing so, you could deny yourself of certain exemptions from liability available to you for content which you merely host (but over which you exercise no editorial control.
      
9. If your website sells goods or services, there are more layers of legislation with which it is important you comply. Unless you want the OFT knocking at your door...or worse...legal action from a disgruntled consumer...or bad publicity. 

There is also new legislation scheduled to come into force in April this year implementing the Unfair Commercial Practices Directive which will make it illegal for businesses (and websites) to represent themselves falsely to consumers. This will cover the situation, for example, where a restaurant posts glowing but falsified reviews of itself on its website. More on this, however, in April.

Laurie Kaye/Yasmin Joomraty

 

Practice Pointers: Guidance for Website Operators

With online Christmas shopping in full swing, we thought a quick, albeit 'Scrooge like' comment about online legal compliance might be appropriate.

We're often asked for guidance on what information must be displayed on a website to ensure it is legally compliant. The answer will vary depending on the type of website concerned. Needless to say, a website selling goods or services will have significantly more legal requirements than an information-only website.

If any personal data is collected via a website, it must display a privacy policy in order to avoid falling foul of data protection laws. This will include an information-only website which gathers email addresses in order to offer a newsletter or e-brief.

We have put together a few pointers on the legal requirements for various websites, which you can access here: Download uk_website_guidance.pdf and on our website. Of course, this is no substitute for legal advice and is intended as non-comprehensive, general guidance only. If you require assurance that your website is legally compliant, please contact us and we will be happy to help.

Laurie Kaye